Novartis SLB: twin bond divergence

9 minute read

Novartis AG, a Swiss-based manufacturer of pharmaceuticals and consumer healthcare products, has been a regular issuer in the corporate bond markets for many years.

In September 2020, it issued its first Sustainability-Linked Bond (SLB) into the Eurobond market. The bond specified two Key Performance Indicators (KPIs) linked to increasing its patient reach in low- and middle-income countries.

In its 2022 Integrated Report, Novartis highlighted the good progress it had made and noted that it was on track for achieving its Sustainability Performance Targets (SPT).

Historical KPI data, however, has been volatile, and given there are three years before the target observation, there remains uncertainty over whether the targets will be achieved. Our analysis estimates the SLB could have an option value of 5bps.

The Novartis SLB has a ‘twin bond’. The bonds are nearly maturity matched and have close coupons. The presence of a ‘twin bond’ enables easy pricing comparison. Whilst these two bonds have historically traded closely, they have diverged in recent months, and are currently at widest levels in the past year.

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